GBP/USD extends into a two-day bullish recovery as 1.34 holds

GBP/USD gained a little over 0.2% on Monday, clawing back recent losses.
Risk-off Greenback flows loosened their grip further to start the new week.
Despite a near-term cooling of market tensions, a US government shutdown still looms.

Joshua Gibson FXStreet

GBP/USD clawed its way into a second consecutive winning market session on Monday, squeezing out another one-fifth of one percent as top-heavy US Dollar (USD) flows continued to recede across the board. The Pound Sterling (GBP) gained just enough room to squeeze back about the 1.3400 handle, and now the latest UK Gross Domestic Product (GDP) growth figures lie ahead on Tuesday.

Final Q2 UK GDP growth is expected to hold steady at 0.3% QoQ and 1.2% YoY. The final GDP figure rarely deviates far from consensus. However, a steep enough unexpected tilt in either direction could send the Pound soaring or plummeting, depending on whether the data over- or under-shoots forecasts.

US Nonfarm Payrolls (NFP) data looms ahead later this week, but investor sentiment has battled into an uneasy holding pattern. There is a looming risk that the latest US jobs report may not get released at all this week as the US government barrels toward a funding freeze and temporary shutdown. US President Donald Trump has threatened to terminate thousands of federal jobs if the two sides of US Congress can’t pass a federal government funding bill, effectively taking his own government hostage and threatening to further hamper federal operations.

GBP/USD price forecast

The Pound Sterling has extended a painfully slow bullish recovery after tumbling into seven-week lows last Thursday. GBP/USD is back above the 1.3400 handle for the time being, but near-term price action is poised to face further downside pressure from the 50-day Exponential Moving Average (EMA) acting as a technical ceiling near 1.3480.

Even if intraday bids are able to crack the key MA, the 1.3500 handle is lying in wait just north, littering the top side of the chart with traps for bulls to fall into.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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